UN: Migrants send double the amount of foreign aid back but little of it benefits the country

Migrant workers from the world’s poorest countries sent home $27 billion (21 billion euros) in 2011 despite the global financial slowdown, but developing nations are failing to benefit fully from the cash, the UN said Monday.

Remittances “could prove particularly valuable for capital-scarce developing countries,” by helping to reduce poverty, improve healthcare and education, the United Nations Conference on Trade and Development said in a new report.

According to the report, titled “Harnessing Remittances and Diaspora Knowledge to Build Productive Capacities”, some $27 billion in remittances were sent to the world’s 48 least developed countries (LDCs) last year.

Remittances thus represent the second largest source of foreign financing for such nations after official development assistance, which brought them $42 billion in 2010.

Yet, despite the fact that migrants were sending home double the amount that poor countries received in foreign direct investments, little of the remittance cash was being used as capital to raise loans with foreign lenders, UNCTAD Secretary General Supachai Panitchpakdi said.

Speaking to reporters in Geneva ahead of the report’s publication, he lamented that this was a missed opportunity.

While other areas were hard-hit by the global economic slowdown, remittances had proved resistant to the crisis, he pointed out, stressing they were increasingly needed for keeping poor economies running.

Remittances to the world’s poorest nations in fact grew eightfold between 1990 and 2011, Panitchpakdi said, adding that this was largely due to a soaring number of migrants from such countries.

Between 2000 and 2010, migrants from LDCs rose from 19 to 27 million, he said.

Taffere Tesfachew, who heads UNCTAD’s least developed countries unit, meanwhile lamented that only six or seven of the 48 LDCs have policies in place to deal with remittances.

LDCs also had an incomplete understanding of how much money was being sent home since much of the cash went through informal channels to avoid the “exceptionally high” commissions demanded by official money transfer companies, he said.

Moneygram and Western Union, which handled 65 percent of remittances in sub-Saharan Africa, for instance levied commissions averaging 12 percent on transactions. Sometimes people had to pay more, he said.

“If you are sending $100 and you are paying $12 to $17 to send that $100, the $12 (commission) is a lot of money — it’s two weeks’ salary, so you will not send it through formal (channels),” he pointed out.

“We don’t see remittances as a panacea,” added Tesfachew, insisting they were one of many solutions for LDC growth.

But it was important, he maintained, that LDCs implemented schemes that encouraged the diaspora to formalise their money transfers back home.

One solution would be for LDCs to encourage migrant workers to bank their earnings in their country of origin so that cash-strapped governments could raise loans with the capital, a system known as securitisation.

Bangladesh, which receives $10 billion to $11 billion a year in remittances did just that, Tesfachew said, and it worked because lenders “know there is this much coming this year and there is more likely to come next year, (so) they are willing to lend the government knowing there is foreign exchange available for them to repay (the loan).”

The World Bank, the UN agency pointed out, had estimated that the actual amount of money sent home unofficially via informal channels could be as much as 50 percent higher than the official figure.

Remittances to LDCs accounted for nearly 6.0 percent of the total global flow of remittances last year of $489 billion, UNCTAD said.

In Bangladesh, the richest of the LDCs, informal remittances accounted for more than half the official amount, the report said, and in Uganda the amount came to 80 percent, the UN agency added.